How Bad Could Recession 2023 Be?

Despite signs of easing inflation rates, the increasing interest rates can still push the US economy into a recession in 2023. The down performance of the stock market is further adding fuel to the talk of recession. Economists are forecasting the recession to hit the wealthies the most.

With all this haze, let’s get the picture clearer and answer the big question: Is recession 2023 inevitable?

What is Causing the Recession?

Two years of COVID-infused economic slowdown, the Russia-Ukraine war, and skyrocketing fuel and food prices are paving turbulent times ahead for low-income countries in Latin America and Africa. 

Inflation stayed one of the significant concerns for billions of people across the world and will remain so in 2023, as warned by the World Bank and the IMF.

Experts fear that it’ll likely take some more time for prices to come down from the high they touched in 2022. And causing this economic catastrophe are various factors, including:

Central banks hiking the interest rates 

Central banks are hastily boosting interest rates to combat growing inflation and the negative effects of a strong currency on their economies. This occurs while the US Federal Reserve maintains its aggressive pace for rate hikes.

IMF Report

On the other hand, the Reserve Bank of India is also dealing with a high rate of inflation that has persisted over time and is made worse by supply-chain disruptions, droughts, and geopolitical turmoil.

Hike in energy and food prices 

Russia, the world’s third-largest producer of oil, is currently facing challenges in the global oil market due to the ongoing conflict with Ukraine and sanctions imposed by various countries. Russia supplies 14% of the world’s crude oil, or around 7-8 million barrels per day, to foreign markets. 

The restrictions have also affected the domestic market, as Russia has halted exports of sunflower oil due to tighter import regulations. This has led to an increase in the price of food and other goods as the demand for sunflower oil, a commonly used cooking oil, has risen.

Depreciation of major currencies against the dollar 

The Japanese yen, Indian rupee, and euro have all experienced significant declines in value compared to the US dollar. 

The yen has reached its lowest point since 1998, the rupee has hit a new historical low, and the euro has fallen below the dollar for the first time in two decades. 

These declines in important currencies are a clear indication of the current state of the global economy. If significant measures are not taken, that could be signaling a recession in 2023.

Rising Certainty of World War III

The actions of the US in providing military aid to Ukraine in response to Russia’s invasion have escalated tensions between the two countries. Russia’s President Vladimir Putin has warned that further support for Ukraine could lead to a global catastrophe. 

Additionally, there have been recent tensions between China and Taiwan, as well as between China and India, which could potentially escalate into serious conflicts. The ongoing civil wars in countries such as Somalia, Yemen, Syria, Ethiopia, Afghanistan, and Mali have also increased concerns about the possibility of World War III

The potential for such a war would have a significant impact on the global economy, leading to starvation, higher oil prices, depreciation of currencies, and potential recession on the horizon.

How to get prepared for “likely to be worse” 2023?

Economists and major global organizations have raised concerns that the Federal Reserve’s continued interest rate hikes may lead to a worsening economic situation in the coming year. As borrowing becomes more expensive, consumers may cut back on their spending, which could potentially trigger a recession.

While a recession has not yet been officially declared by many developed countries or organizations, the current state of the global economy suggests that it may be on the horizon. To prepare for this potential recession in 2023, it’s advisable to:

Have a Backup of Emergency Funds: 

A backup emergency fund brings you into the driver’s seat even in a worse situation. As we saw during the time of Covid-19, people with backup funds survived lockdown more quickly than those meager savings.

Hence increasing your emergency fund is advisable in case of recession; if you lose your job, you can survive easily for a more extended period of time.

Read Next: How to Build an Emergency Fund: A Complete Beginner Guide

Spend Less, Save More: 

Spending less and saving more is the bedrock of your recession period. Cutting off your inappropriate expenses and saving them for your future will not be less than a bar of gold for you.

Think Wise Instead of Panicking:

When you keep hearing how quickly the economy could take a significant turn for the worse, it can be challenging to maintain your composure. However, instead of losing sleep, try being proactive in improving your financial status so you are prepared to weather a downturn. To avoid being laid off if layoffs occur in the future, you might be able to increase your savings, pay off high-interest debt, and develop your professional abilities.

Read Next: 6 Key Principles of Personal Financing: A Guide to Surviving the Recession

Recession 2023: The Worst is yet to come

The signs of an impending recession are clear: a slowing economy, high-interest rates, currency depreciation, bankrupt countries, and the looming threat of war between nuclear nations. The situation is dire and requires immediate attention. The indication of recession should be a wake-up call for policymakers to take urgent action.

To prevent a global catastrophe, policymakers must provide targeted and powerful assistance to governments in need while also implementing reliable medium-term fiscal strategies. We cannot afford to wait for the worst to happen. Action must be taken now before it’s too late.

Cost of living is increasing. How bad will recession 2023 be?
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